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In this BCG Business Podcast, Christophe Duthoit and Jeff Kotzen, senior partners at The Boston Consulting Group, sit down with Mike Capone, chief information officer of Automatic Data Processing (ADP), a global leader in payroll and human resources solutions. Capone speaks about technology’s key role within ADP as a driver of competitive advantage, steps he has taken to maximize IT’s contribution to the business, and his aim in building a visible presence outside the company.

Mike, you’re a rare breed, having spent your entire career with one company. Can you briefly describe your career at ADP and how you arrived at your current role?

Sure. I’ve been with ADP almost 24 years now. I started out in product development as a programmer and, through some good luck and hard work, eventually ended up as CIO. My responsibilities today include both IT operations and infrastructure—the traditional data center, networking, and so forth—and also the really fun part of my role, which is product development.

How big is ADP’s IT organization?

We’re about 5,000 people, with annual spending of a little more than a billion dollars.

IT is important to the performance of many businesses, obviously, but it’s particularly important to ADP. Can you discuss the critical role it plays within the company?

The services we offer are directly tied to and driven by IT, so you could say that IT essentially is our business. Hence, it’s critical not only that our IT operations and infrastructure are always up and running but that we stay at the vanguard of developing and delivering applications. We are, for example, currently the world’s largest business-to-business cloud provider. So my job is to figure out, on an ongoing basis, how to leverage technology to provide ADP with a competitive advantage. It’s a challenge that gets me up every morning and keeps me excited about coming to work.

What role does IT play in driving innovation?

IT plays a key part in driving innovation at ADP, and the IT function is intimately involved not just as an enabler of innovation but in the decision-making process. In fact, having a seat on the executive committee was one of my preconditions for taking on the CIO role when I was offered the position. I wanted to make sure that IT had a clear part in setting strategy and influencing direction. You don’t want IT to be an order-taker, something that only gets involved at the back end. So we’re intimately involved all the way through the innovation process, including at the vision stage. One of our key contributions is that we help people—senior leadership, product marketing, and other key people across the organization—envision what’s possible. We let them know what IT capabilities are out there and then work together with those people to leverage those capabilities to deliver market-leading products and services in a way that differentiates ADP from the competition.

You mentioned cloud. ADP has a history of leveraging some of the latest technologies. Is that a conscious choice to stay ahead of the curve?

It’s been largely driven by necessity. Back in the old days, our clients were practitioners—payroll managers, HR professionals, and so forth. These clients were focused predominantly on accuracy and timeliness, and we structured and oriented ourselves to accommodate them, with big mainframes in the back crunching the data, programmers working on compliance, and so forth. And that was all great. But an important development occurred along the way—those folks are no longer our only clients. Today our clients, the people we touch on a day-to-day basis, are actually the consumers, the end users. And their expectations have gone through the roof in terms of technology. So we’ve had to transform ourselves as the market has transformed and refocus our efforts on delivering a strong consumer-driven IT experience. Hence, we’ve rolled out things like mobile technology, we’re rolling out analytics, and we’re rolling out social components to all of our platforms. This shift has demanded a complete transformation in the way our IT delivers—we’ve had to become much more agile and able to jump on trends and bring products to market more quickly. So that’s really what we have been working on over the last three years.

How do you keep track of technologies that are on the horizon, or even beyond the horizon, and determine which ones are likeliest to have an impact on your business?

Initially, when we were in catch-up mode, it wasn’t hard to identify the technologies. We knew we needed to get into the mobile market and social media, for example. Our clients were fairly unambiguous about what they wanted. So the challenge was how to build teams to be able to deliver on those technologies. Ultimately we determined that it required going outside the organization in some cases and bringing in third parties who thought a little differently about how we deliver technology or who had specific expertise. We also developed new capabilities in-house where we needed to. And those efforts have been successful. So that was phase one.

Phase two—determining what’s next—is hard because the landscape is changing so fast. And when all of your people are dedicated to their day-to-day roles, it’s really difficult for them to keep track of the market and understand what’s going on. So what we’ve done to address that, within the last year, is to establish an innovation lab.

We identified ten people whose sole purpose, essentially, is to innovate. They have no typical day-to-day responsibilities, they’re not picking up the phone to answer operational questions, they have no deadlines. Their job is to innovate, watch trends, try some things out, and have those failures that we all know come with efforts to drive innovation. But hopefully, for every failure, we’ll also get some cool new thing that we bring to market that pushes us in front of some of our competitors. And the goal is to do this on a sustainable basis.

Other companies, including some of your competitors, have dedicated innovation functions, too. How is your approach different?

We’re not going to be IBM or Microsoft, with a thousand PhDs sitting around dreaming stuff up. That’s not a model that fits ADP. We’re very much a results-driven company, so we are really focused on trying to drive business transformation. We’ve developed a hybrid approach that combines the traditional innovation lab with a “what have you done for me this week?” type of model. And I think we’ve hit on the right mix, at least for now. But things change, and if we have to, we’ll change with them.

How do you staff the innovation lab?

About 50 percent is people from the outside, individuals we brought in who have critical skills. The other half is internal people. We thought it was important to have people from the inside both to get the ADP experience in there and because we think the innovation lab is an excellent rotational assignment for high performers, people we can motivate and who can help seed a culture of innovation throughout the organization. Most of these people are from our product-marketing and IT groups, but we’re open to anything. If someone wants to come out of service or implementation, or even finance, we’ll take them. Innovation to me is how you think, it’s imagination. I’ve got enough people who know the technology. What I really need are people who can think outside the proverbial box.

Shifting gears, ADP is a global organization with multiple business lines. What challenges and opportunities does that present you in terms of IT organization and governance?

We are indeed a global company, with a presence in a lot of markets. But traditionally we’ve operated more as a multinational, or multicountry, company. Our individual country operations have been, for the most part, siloed, with each country having its own organizational structure, products, R&D, and so forth. This isn’t necessarily the most efficient way to operate. So, like many companies, we’re in the midst of transforming ourselves from a multinational model to a global one. In the process, IT has leveraged a lot of opportunities to implement shared services, including in product development—in fact, we’ve aligned all product development under one organization, one that has a very strong bottom-line reporting relationship with the business. We’re making excellent progress.

Another reason IT—and the company broadly—is pushing toward a more global model is to align more closely with clients’ wishes. A number of clients have told us that they want ADP to operate more globally and with a single face around the world. They don’t want ADP France, ADP Germany, and ADP U.S. They just want ADP. So we’re working toward that. And even though there are certainly differences between countries when it comes to things like statutory requirements and legal issues, ultimately we’re finding that there are more commonalities than differences. So we’ll get some leverage from those commonalities as we move in this direction.

As you move toward greater globalization, how do you determine the optimal mix of centralized and decentralized IT services?

We’ve taken a number of different approaches. The real start to the journey, and the one that got it off on the right foot, was an organizational effectiveness exercise we engaged in early in my tenure. At the time, IT was fairly disconnected from the business. So we set about realigning the organization. Most visibly, we reduced the number of layers between me and the client from 11, which didn’t make a lot of sense, to 7. But more important, while we did that we also looked critically at the governance structure and thought very hard about how we could better align with the business, how the right governance could improve everything we do with the business on a day-to-day basis.

And that thinking and that exercise have really paid off. My heads of product development, for example, are integral parts of each business unit’s executive committee; they’re equal partners in decisions and in defining strategy. We have very strong, very functional ties between business and IT. We’re not done, though. We have fine-tuned the model over time and will certainly continue to fine-tune it as we bring in our international and global operations. I guess that’s one thing I’d say to any CIO involved in something like this: don’t stand still. Don’t think you ever really have it figured out, because you never really do. Tomorrow it’s going to change.

Overall, where are you currently in your transformation of IT, and what are the next steps?

Progress to date has been good. One of our major accomplishments has been to develop a more client-centric culture. We needed to get everyone within IT to understand that we exist for a specific reason, which is to support the business and clients. So now every leader in IT is required to spend time in the business, whether it be listening to service calls or going out on sales calls. Everything we do now is tied to some business outcome and not just some internal IT-facing project.

We’ve also improved our abilities in project delivery and management—we’re better governed, have greater predictability and visibility, and are better able to deliver on time. As part of our work here, we’ve implemented a fairly robust portfolio-management function that allows us to really track where we are, look at how we allocate resources, and very quickly reallocate resources as priorities change. A lot of that probably sounds like basic blocking and tackling. But when you take essentially 16 or 17 different IT organizations and centralize them into one, you need to have this stuff. It’s critical.

My next real focus is to continue to push the agility lever. We have to become more agile. So we’re experimenting with different models, including potentially segregating maintenance work from new development, possibly even creating a separate entity focused on innovation. The goal ultimately is to be able to get to market faster, to be more responsive, to be able to turn on a dime when things change.

How do you measure how well IT is supporting the business?

We have all of the traditional metrics and SLAs [service level agreements] in place. So we look at things like turnaround time, help-desk performance—you know, the basics, all of the things that you have to do as CIO. We also do surveys, asking our users to rate our performance. And we get input through our business-relationship-management group, whose goal is to help manage the governance between the IT organization and the business.

But the most important gauge for me, the thing we’re really focusing on, is business outcomes. When the company delivers a new product or service to the market, does it hit its sales objectives? If not, we’ll sit down with service to understand the defects and determine the things that IT could have done better. So the emphasis is not on IT metrics for IT’s sake but rather on business metrics that tie back to IT. And the alignment we’ve achieved with the business, where my IT leaders sit in on meetings with the business unit executive committees, allows us to get this type of information in real time—not just once a quarter when we conduct a review. We’re getting real-time feedback and we’re adjusting.

Mike, you have a very visible presence outside ADP. As CIO, how do you view your external role?

My goal in getting out there is to make ADP more visible as an innovative, technology-driven company. I want to let people know that we’re doing some really cool things and that this isn’t your grandfather’s ADP. I want people to see the new technologies we’re bringing to market, what we’re doing with analytics, what we’re doing with mobile. I don’t want people to think of us simply as a payroll company or a mainframe shop. For a while, IT was the man behind the curtain at ADP—we weren’t getting the job done in terms of educating our client base about what we can do and the company’s innovations. We’re getting a lot better at this.

What do you see as your most critical challenges and opportunities, in terms of R&D and technological innovation, over the next three to five years?

There are days when I imagine what it would be like if this were a startup company. I’d have a clean slate, could envision what I want to envision and make it happen, could bring on clients slowly and at my own pace, and so on. But ADP isn’t a startup—we have nearly 600,000 clients. So the biggest challenge for me over the next several years, as we transform and consider bringing new technologies to bear, is to think about the implications for those nearly 600,000 clients, as well as for our existing product portfolio and brand. And it’s a major challenge, one that a small startup doesn’t have to worry about. And some of our competitors are small startups. But we’ve proven, for over 60 years, that we can do this successfully. And I have that 60 years of domain expertise behind me, which makes my job much easier.

Are there any high-level lessons you’ve learned in your tenure as CIO that you’d like to pass along to your fellow CIOs?

Maybe two. First, as I said before, when it comes to transforming IT, you’re really never done. When I hear one of my fellow CIOs say he or she just completed a transformation effort, I think to myself, No, you didn’t. There is always more to do, things are just changing too quickly to rest on your accomplishments. The other thought I’d offer is that for a budding CIO, there can be real value in spending time on the business side. I’m not trying to discourage someone from coming up through the technical ranks, because I spent a bunch of years doing so myself. But I would encourage anybody, even if you’re a CIO today, to take the opportunity to go out into the business, run a business for a few years, get a feel for what’s going on on the other side, and then come back in. I think doing so probably increased my effectiveness as a CIO exponentially. In fact, I’m sure of it.

A final question: What do you love most about what you do at ADP?

I love everything I do here, actually. But I suppose what I love most about the job is that I’m involved in determining the company’s vision and strategy, whether they’re technology-driven decisions or not. That’s what really motivates me. I also love the interaction with clients.